You may come across the terms appraised value and market value when buying or selling a home, and the differences can be confusing.
Appraised value reflects the value of a home as determined by a state-licensed professional. Home appraisals are typically conducted on behalf of banks and lenders to determine the appropriate amount of money to lend for a mortgage.
Fair market value describes how much a buyer will pay for a house. The state of the economy and recent comparable home sales play a role in a home’s market price.
Our guide breaks down how appraisal values and market values work to help you determine a home’s fair value.
Appraised value vs. market value breakdown
Mortgage lenders want to ensure they don’t provide loans for more than a house is worth. To establish fair value, a licensed professional performs an appraisal.
Sellers can get an appraisal before listing a home for sale to guide their pricing strategy. Buyers often get one during mortgage underwriting, after an offer is accepted.
Factors determining appraised value include the number of bedrooms and bathrooms, square footage, condition, location, renovations and upgrades, and the age of the home.
The market value of a home reflects how much a buyer is willing to pay for a house.
Real estate market factors, such as the number of houses available for sale and the price of similar homes sold in the area, can influence the fair market value of a house.
It’s helpful to know your home’s fair market value before listing it for sale so you can set a reasonable price. Buyers can also learn a home’s fair market value to make a competitive offer.
A comparative market analysis (CMA) provides a more accurate, detailed analysis. CMA reports are put together by real estate agents who base their estimates on a visual inspection of a property and by surveying recent comparable home sales.
» LEARN: What is a CMA in real estate?
Market value vs. appraised value: The main differences
Key distinctions between an appraisal value and fair market value include:
- Appraised value is more comprehensive than market value.
- A professional determines an appraised value; a home value website or a real estate agent estimates market value.
- Lenders often require an appraisal before offering a mortgage to buyers, but you can get an appraisal before listing a home for sale.
- Market value more closely reflects the current real estate market environment.
What is tax assessed value?
The third type of property valuation is called the tax assessed value. Your local tax assessor calculates the value of a house to determine property taxes.
Tax assessed values are often lower than an appraised value or fair market value. They’re more focused on setting a home’s value for tax purposes, not how much it might sell for.
A tax assessed value isn’t as important for establishing the market price of a home. But it’s an essential factor to consider when determining how much tax liability a buyer might incur.
How to determine a home’s value in 3 ways
1. Online home value websites
Home value estimators such as Redfin and Zillow can provide a general idea of what your home might sell for on the open market.
Although not as accurate as an appraisal or CMA, they are fast and give you a ballpark idea of your home’s value.
Compare home estimates from multiple websites to get a more complete picture of your home’s potential market value.
A local realtor can give you a free CMA report that helps you get a more accurate sense of a home’s fair market value.
CMA reports are more detailed since they combine an in-person home inspection and compare similar home sales in the area.
A CMA report can help set the prices of a house, but ultimately home buyer sentiment determines how much a home sells for.
3. Pre-listing appraisal
A state-licensed appraiser determines the appraised value of a home.
Appraisals can be costly ($350 – $500) and take time (a week or longer), but usually give you the most accurate evaluation of a home’s value.
While buyers often get an appraisal during the mortgage underwriting process, homeowners can get a pre-listing appraisal to help set a fair listing price.
Frequently asked questions (FAQs)
Is appraised value or fair market value more important?
Buyers and sellers can factor in both the fair market value and the appraised value of a home to determine a pricing or offer strategy.
Fair market value is simply what a buyer is willing to pay for a house in the current market. You can get an estimate of fair market value by plugging the address into an online home value estimator or by getting a CMA report from a realtor.
Learning a home's appraised value can be useful for sellers who need to set a fair listing price. Appraised value is also required for lenders during the mortgage underwriting process.
What goes into an appraisal?
Home appraisals account for a wide range of house features including number of rooms, overall condition, location, square footage, and renovations and upgrades.
Home appraisals are broader than CMAs as they factor more objective data into their value calculation. A CMA is more helpful in determining what a buyer may be willing to pay for a home during a snapshot in time.
Can my house sell for more than its appraised value?
Yes. If your appraisal comes in for less than the agreed-upon purchase price, the buyer may offer to pay the full difference or try to split the cost with you.
Cash buyers don’t require loans, but may still order an appraisal to determine the home's appraised value. However, since there’s no mortgage required, there's more flexibility for the buyer and seller to agree on a price and terms.
How to Determine the Fair Market Value of a Home. Estimating a home’s fair value can be tricky. Our guide breaks down the best ways to calculate your home’s true value (for free).
Best Home Value Estimators Revealed. We spent several weeks testing out the top home value websites to determine which one is the most accurate and reliable. Our guide breaks down which ones you should use (or skip).
What is a Pre-Listing Appraisal? Here’s everything you need to know about appraised values, and getting an appraisal before selling.
What is a CMA in Real Estate?: CMAs are one way to determine a property’s fair market value. Learn more about CMAs, including how to get one for free.